Asian factories see increased activity

‘DECENT PACE’:China has defied expectations of a slowdown this year, while shipments from Japan and South Korea remained robust, helping growth there

Reuters, SINGAPORE

Factories in Asia’s largest economies cranked up activity last month as a synchronized upswing in growth globally pointed to solid consumption of manufactured goods heading into the lucrative end-of-year shopping season.

However, pockets of weakness in regional economies are likely to keep Asian central banks slanted toward more accommodative monetary policy, even as their Western counterparts move to scale back stimulus.

China’s central bank on Saturday cut the amount of cash that some banks must hold as reserves for the first time since February last year in a bid to encourage more lending to struggling smaller firms and energize its lackluster private sector.

The world’s second-largest economy has defied expectations of a slowdown this year, growing at a strong clip in the first half thanks to a construction boom.

“It’s a solid backdrop for manufacturing in the region as we head toward the big shopping season,” said Rob Carnell, head of Asia research at ING.

That sentiment was backed by an official purchasing managers’ index from China’s vast manufacturing sector, which showed activity last month grew at the fastest clip since 2012 on solid demand.

However, cost pressures from high raw materials prices and continued underperformance of smaller firms mean some manufacturers are still struggling, which was reflected in a separate private survey of Chinese factories showing growth slowed last month.

In Japan, factory activity grew the fastest in four months, thanks to robust exports growth and underpinned improving economic momentum even though inflation remained tepid.

Meanwhile, a closely watched Bank of Japan (BOJ) survey showed big manufacturers have more confidence in business conditions than they have had for a decade, thanks to a weaker yen and robust global demand.

In South Korea, manufacturing activity expanded at the fastest pace in almost two years.

Indonesia, Southeast Asia’s biggest economy, also showed an improvement in factory growth, but the pace was tepid and production contracted slightly.

Indonesia has cut interest rates twice this year in a bid to boost stubbornly weak domestic consumption, while India slashed rates once in August to spur growth and inflation.

Those moves, along with the BOJ’s commitment to maintain its ultra-low rates for the foreseeable future, marked a contrast to the West’s shift toward tighter policy, although analysts expect the extent of stimulus in Asia to be measured.

“I would characterize some of the easings [in Asia] as a bit of fine-tuning really and not a major divergence in policy with the West,” Carnell said. “The regional economies continue to grow at a decent pace.”

Indeed, a synchronized upswing in the global economy has been a boon to manufacturers from China to Britain and the US, with export-reliant Asia enjoying a spurt in growth led by an upsurge in sales of electronics.

A raft of European PMIs scheduled for publication later yesterday were expected to paint a picture of robust manufacturing momentum globally.

Shipments from Japan and South Korea — two major exporters — remained robust with the boom helping their economies grow at a decent clip.

In Taiwan, another export bellwether, factories continued to expand at a steady pace on higher global demand.